After the global financial crisis, central banks have continued to flood financial markets with excess liquidity in an environment of subdued global growth. Investors have piled into any sprouts of growth, in particular technology stocks. It appears investors have hunted companies that can grow above market rate and have little concern as to what they’re willing to pay for it. The multiples on stocks like Tesla, AfterPay, Zip, Uber, to a value investor are unfathomable.
Value investing is identifying stocks that trade below their intrinsic or book value, with the idea that they will eventually return to their implied value. The trouble is that a lot of these companies have failed to return to their so-called intrinsic value.
The momentum and growth style investing has been a dominant force, at the cost of traditional value stocks. That is, until a COVID-19 Vaccine came around. One thing we know about value investing is that it goes in and out of favour. At the moment, markets are expecting interest rates to stay low for quite some time and stimulus packages are being put together as we speak. Creating a solid environment for value stocks to resurge. And resurge is exactly what they did in November. Our eInvest Income Generator Fund (Managed Fund), which uses a value approach to picking stocks was up 16.4%* over the last quarter ending December 2020. All while delivering on its 7% p.a. targeted income yield, based on the current share price.
The question is whether it is a flash in the pan, or value investing is in fact here to stick around a little longer? What we think for the eInvest Income Generator Fund (Managed Fund) (ASX:EIGA) is that there is always a place for established, well capitalised, dividend paying solid companies, which is exactly what ASX:EIGA invests in. Do these stocks have a trendy, sneaker wearing millennial CEO at the helm and an abundant twitter presence? Perhaps not. But they are businesses you would interact with every day: banks, supermarkets, retailers etc.
As we keep swiping our credit cards, they continue paying dividends. Even during COVID. There’s something to be said about that.
* Returns are calculated using net asset value per unit at the start and end of the specific period and do not reflect the brokerage or the bid ask spread that investors incur when buying and selling units on the ASX. Past performance is not a reliable indicator of future performance.
Disclaimer: Please note that these are the views of the writer, George Whiting, Investment Specialist at eInvest and is not financial advice. Past performance is not a reliable indicator of future performance. To find out how to invest in our active ETFs, visit here. The product disclosure statements and more can be found at www.einvest.com.au. If you’d like to keep learning further, please feel free to follow any of our socials listed below.